TMI Blog2016 (1) TMI 169X X X X Extracts X X X X X X X X Extracts X X X X ..... accounts of the assessee. According to us, assessee’s claim is reasonable and is to be accepted. There is no scope for further disallowance of 1% of the exempted income in view of the above reasons and facts of the case - Decided in favour of assessee Disallowance on account of claim of provisions for leave encashment - Held that:- We find that Ld. counsel for the assessee stated that the deduction on account of provision of leave encashment was made on the basis of the judgment of Hon'ble jurisdictional High Court in the case of Exide Industries Ltd. Vs. Union of India (2007 (6) TMI 175 - CALCUTTA High Court ) but he fairly conceded that subsequently Hon'ble Supreme Court has stayed this judgment of Hon'ble jurisdictional High Court [2009 (5) TMI 894 - SUPREME COURT ]. In view of the above, Ld. counsel for the assessee fairly stated that let Hon'ble Supreme Court decide the issue and by that time the matter can be remitted back to the file of AO for fresh adjudication in term of the decision of Hon'ble Supreme Court. On this, Ld. CIT DR has not objected to the same. Accordingly, we set aside this issue to the file of the AO to await the decision of Hon'ble Supreme Court and de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in case of vacant property and not where the property was actually let out since in the case of let out property, the assessee was not entitled to anything over and above the agreed rent. The said action of the AO has resulted in taxing notional income in the hands of the assessee, which never accrued and hence cannot be brought to tax. Accordingly, we are of the view that the CIT(A) has rightly deleted the addition - Decided in favour of assessee Disallowance u/s 40(a)(ia) - non-deduction of tax u/s. 195 for legal services to residence of Thailand and Australia - Held that:- these expenses in foreign currency represent on account of professional services rendered by non-residents from their offices in foreign countries. The parties reside in foreign countries namely, Thailand and Australia. Admitted position is that to these payments the provisions of DTAA will apply because with both the countries India have DTAAs. Under the tax treaties ‘professional services’ includes legal services and the same could only be taxed in the countries of residence of the non-residents unless the services are rendered from a fixed base in India - Decided in favour of assessee - I.T.A No.230/K ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8D of the Rules. The assessee explained before the AO that it had already offered a sum of ₹ 12,73,10,367/- and ₹ 7,51,731/- being interest on loan and demat charges respectively incurred in connection with earning of dividend income and long term capital gains. Hence, no other expenditure was incurred by it for earning exempted income. According to him, the dividend income earned by assessee was only from EIH Ltd., a group company of the assessee. The assessee before the AO also contended that he has empowered to determine the amount of expenditure in relation to exempted income only if he is not satisfied about the correctness of the claim made in the return of income regarding accounts of the assessee. He also stated that the assessee has made disallowance of expenses on a reasonable basis and this practice is being consistently followed. The AO was not satisfied by the explanation of the assessee and he made further disallowance of ₹ 83,93,827/- by invoking the provisions of section 14A of the Act on account of proportionate management expenses. Aggrieved, assessee preferred appeal before CIT(A), who restricted the disallowance at 1% of the exempted income and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions and gone through facts and circumstances of the case. We find that for the relevant AY 2007-08 Rule 8D is not applicable because the same was introduced by the I. T. (5th amendment) Rules 2008 w.e.f. 24.03.2008. Hon ble Bombay High Court in the case of Godrej Boycee Mfg. Co. Ltd. Vs. DCIT (2010) 328 ITR 81 (Bom) has held that applicability of Rule 8D as prospective for and from AY 2008-09 and not retrospective. We further find that the assessee had already offered and identified an amount of ₹ 12,73,10,367/- and ₹ 7,51,731/- being interest on loan and de mat charges respectively for disallowance being related to exempted income. According to us, in view of the above facts and circumstances, no further disallowance can be called for in respect of exempted income. Even otherwise, the assessee company has received the dividend income from one of its group company i.e. EIH Ltd., which has the same registered office as that of the assessee and there is no specific management cost incurred for earning this dividend income. Further, the AO failed to appreciate the facts of the case that there is no satisfaction recorded by the AO with regard to correctness or ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have required any time and energy of any employee, resources etc. of the company. Somebody has to take the effort to decide the investment pattern and the nature of shares, securities units etc. where investment has to be made. Accordingly, he invoked the provisions of section 14A of the Act read with Rule 8D of the Rules made further disallowance of 0.5% of average investment being value of expenditure incurred for exempted income and made disallowance of expenditure to the extent of ₹ 83,25,042/-. Aggrieved, assessee preferred appeal before CIT(A), who directed the AO to recomputed the disallowance by ignoring the investment made in foreign companies while computing the disallowance u/s. 14A of the Act read with Rule 8D of the Rules. Aggrieved, assessee came in appeal before Tribunal. 7. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee company has already identified and disallowed interest on loan amounting to ₹ 14,21,35,269/- and de mat charges at ₹ 6,85,115/- under the provisions of section 14A of the Act read with Rule 8D of the Rules being expenses relatable to earning of exempted income. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the eventualities, no disallowance can made u/s. 14A of the Act read with Rule 8D of the Rules. Accordingly, this issue of assessee s appeal is allowed. 8. The next common issue in both the appeals of assessee in ITA Nos. 230 1030/Kol/2012 is as regards to the order of CIT(A) confirming the disallowance made by AO on account of claim of provisions for leave encashment. The issue and grounds raised by assessee in both the years is identical. Hence, we will take the facts from AY 2007-08 in ITA No. 230/Kol/2012 and decide the issue. The ground No. 2 raised by the assessee qua this issue reads as under: 2(a) That on the facts and in the circumstances of the case the Ld. CIT(A) erred in sustaining the disallowance made by the Assessing Officer on account of claim of provision for leave encashment of ₹ 2,80,926/-. 2(b) That the Ld. CIT(A) failed to appreciate that the action of the Assessing Officer is against the principle laid down by the jurisdictional High Court in the case of Exide Industries Limited 292 ITR 470. 9. Briefly stated facts are that the assessee claimed deduction on account of provision for leave encashment based on the decision of Hon bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e. the deemed dividend. For this, assessee in AY 2007-08 in ITA No. 230/Kol/2012 has raised following ground no.3: 3(a) That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in not deciding that advances received by the appellant from Oberoi Investments Private Limited did not qualify as deemed dividend as per the provisions of section 2(22)(e) of the Act. 3(b) That on the facts and in the circumstances of the case, the Ld. Cit(A) s action of referring back the matter mentioned in 3(a) above to the Assessing Officer for necessary verification, is not permissible under the provision of section 251(1)(a) of the Act. The facts and circumstances are exactly identical and the grounds raised are identically worded except the amount, hence we will take the facts from AY 2007-08 and decide the issue. 12. Briefly stated facts are that the assessee company during FY 2006-07 relevant to this AY 2007-08 received advances from its associate concerns as under: Oberoi Investments Private Limited Rs.1,00,00,000/- Oberoi Holdings Private Limited Rs.2,50,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue. In respect to advances received from Oberoi Investment Pvt. Ltd., the CIT(A) set aside the issue to the AO for examining whether the lender is in the business of money lending? The assessee during appellate proceedings before CIT(A) filed NBFC certificate of Oberoi Investment Pvt. Ltd. and also submitted that as per Memorandum of Association of lender company, it is one of the objects to carry on money lending business and accordingly, the provisions of section 2(22)(e) of the Act will not apply but the CIT(A) set aside the issue for reexamination after considering the NBFC certificate. Aggrieved against setting aside of the issue to the file of the AO, revenue as well as assessee, both are in cross appeals before Tribunal. 14. We have heard rival submissions and gone through facts and circumstances of the case. We find from the findings of CIT(A) that he has admitted the additional evidence submitted before him in the shape of NBFC certificate of Oberoi Investment Pvt. Ltd. and remanded the matter back to the file of the AO. Now before us also Ld. Sr. counsel Shri R. N. Bajoria stated that the issue can be set aside to the file of AO, who will consider the certificate o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets, which was earlier used as guest house. For this, assessee has raised ground no. 4 in AY 2007-08 as under: 4. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in confirming the disallowance of ₹ 10,76,681 made by the Assessing Officer allegedly as depreciation on Naila Fort Guest House, ignoring the basic principles under the Block of Assets concept that assets once entering the block loses its identity and cannot be taken back. Identically worded ground is raised in AY 2008-09 also and Ld. Counsel for the assessee stated that the facts and circumstances are exactly identical and issue is similar. Hence, for the sake of brevity, we are deciding the issue by taking the facts from AY 2007-08. 18. Briefly stated facts are that the AO during the course of assessment proceedings disallowed depreciation on building house as guest house at Naila Fort and other fixed assets used therein at ₹ 10,76,681/-. Before AO, assessee claimed that depreciation is otherwise allowable u/s. 32(1) of the Act. For this, he explained that the mode of computation of depreciation is allowable under the Act has been shifted to the concept of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to be allowed - In the case of any block of assets, such percentage on the written down value thereof as may be prescribed . Thus, the depreciation is allowed on block of assets, and the Revenue cannot segregate a particular asset therefrom on the ground that it was not put to use. 30. With the aforesaid amendment, the depreciation is now to be allowed on the written down value of the block of assets‟ at such percentage as may be prescribed. With this amendment, individual assets have lost their identity and concept of block of assets‟ has been introduced, which is relevant for calculating the deprecation. It would be of benefit to take note of the Circular issued by the Revenue itself explaining the purpose behind the amended provision. The same is contained in CBDT Circular No.469 dated 23.09.1986, wherein the rationale behind the aforesaid amendment is described as under: 6.3 As mentioned by the Economic Administration Reforms Commission (Report No. 12, para 20), the existing system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respect of block of assets. This requires elaborate book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are reproducing the ground raised in AY 2007-08, which reads as under: 3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in allowing the assessee s appeal regarding the ALV of the house property by admitting three additional grounds in course of appellate proceedings in respect of which no opportunity was afforded to the Assessing Officer to make his submissions or comments thereon. 22. Briefly stated facts are that the assessee company is owner of a property at Oberoi farm, village Kapashera, New Delhi. The assessee for this property entered into an agreement with EIH Ltd., a group company, letting out this property on rent. As per agreement, the property is to be used by EIH Ltd. as residence and office of one of its Dy. M.D for a rental of ₹ 30,000/- per month. The AO during the course of assessment proceedings conducted search in certain private website and based on said search, the AO came to conclusion that the rental income of this property is about ₹ 10 lacs per month ignoring the rental value of ₹ 30,000/- per month offered by the assessee. Accordingly, the AO determined the annual value of this property at & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f various appellate authorities including the Apex Court, which in my view bears substantial relevance in appellant's case. The AO in the assessment order has failed to prove that the appellant has actually earned any income in excess of ₹ 30,000/- per month against the subject property which has actually evaded tax. Hence, in my view, the appellant was justified in offering to tax the rental income of ₹ 30,000/- per month which it actually earned during the relevant year under appeal. Further, the appellant submitted that EIH Limited, in computing its taxable income has claimed ₹ 30,000/- per month as tax deductible expenses. Since the appellant and EIH Limited both had taxable income and the applicable tax rates were also same, there was no revenue leakage. I find justification in this contention. Moreover, on enquiry I find that EIH Limited is also assessable to income tax by the same Assessing Officer. The assessment proceeding of EIH Limited for the FY 2007-08 has already been concluded and the AO has accepted the rent expenses incurred by EIH Limited. Thus, in reality, the same AO has verified and was satisfied with the claim of rent expenses in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed following ground nos. 2 and 3: 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance u/s. 40(a)(ia) of professional and consultancy charges amounting to ₹ 2,20,65,587/- paid by the assessee to various non-resident parties without deducting tax at source u/s. 195 solely relying upon the fresh evidences filed by the assessee before him in relation to AY 2008-09. That on the facts and circumstances of the case and in law, the Ld. Cit(A) has violated rule 46A by non affording the AO to give his comments on the fresh evidences or counter the same before deleting the disallowance u/s. 40(a)(ia) of ₹ 2,20,65,587/-. 25. Brief facts are that the assessee claimed total expenditure under the head professional and consultancy fees, during the year under consideration, at ₹ 3,42,91,086/- out of which a sum of ₹ 2,20,65,567/- represents expenses in foreign currencies on account of professional services rendered outside India by non-residents from their offices in foreign countries. The AO noted that this professional and consultancy fee amounting to ₹ 2,20,65,567/- is subject to TDS u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the foreign parties were filed as well. So countries of residence of the parties were established. The assessee before AO stated the reasons as to why tax had not been deducted at source, which had been spelt out by referring to the relevant articles of DTAA under which tax liability did not accrue in India. At the time of hearing, during assessment proceedings, it was clarified that the non-residents are not assessable in respect of income accruing and received abroad provided the services are rendered abroad and they do not have any permanent establishment in India. The AO did not dispute the fact that services had been rendered outside India and that the payees did not have any permanent establishment or 'fixed base' in India. Therefore, it was claimed before the AO that in terms of provisions of section 195 of the Act it was not required to deduct tax at source from the foreign remittances made during the year. Before CIT(A) also it was clarified that when services rendered are in the nature of professional services, then those provisions of DTAA are to be applied which specifically deal with professional services'. Under the tax treaties professional services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudicated vide para 8 and 9 as under: 8. For the Assessment Year 2008-09 there are other grounds of appeal. The first ground is allowability of legal expenses, paid in Thailand, in relation to arbitration proceedings held in Thailand, and second is claim for deduction u/s. 40(a)(iii). As regards legal expenses paid in Thailand. We find that the assessee submitted before the DRP, that the law firm to whom the payment was made in Thailand is (a) a resident of Thailand; (b) does not have any office or agent or branch in India, (c) none of the partners or employees are present in India during any of the arbitration proceedings, 9d) that the entire arbitration proceeds were held in Thailand in terms of the agreement between the parties, (e) the payment to the law firm was made by head office in Thailand, (e) the services were performed in Thailand. 9. After hearing rival contentions we find that the DRP has not applied its mind to the facts of this case or considered the arguments raised by the assessee. It is dismissed the submissions of the assessee on the ground that the facts are para material to hire charges paid on machinery, which was considered by us in groun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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